October 2014

Today RealtyTrac released a new report that shows the best and worst rental markets in America by county.

Although there appears to be good and bad markets in all parts of the nation, perhaps unsurprisingly, the vast majority of the best markets appear to be concentrated throughout the Midwest, while the worst markets tend to focus on the East and West coastlines, with California leading the pack with 6 of the top 20 worst markets, followed by New York (with 4) and Virginia (with 3).

To determine the best and worst markets, RealtyTrac divided the average 12 month rental income by the median sales price for residential homes in that county. The results show the Annual Gross Yield, which can give an indication to real estate investors which markets will fare better for cash flow.

According to RealtyTrac:

To calculate the annual gross rental yields we used the median sales price for January 2014 except in states where the sales prices is not required to be disclosed on the sales deeds. In those non-disclosure states we used the median list price for January 2014. The rental rates we used were the average fair market rent on three-bedroom home for 2014 from the U.S. Department of Housing and Urban Development.

Okay, maybe it wasn’t my whole face, but it was a good section of skin covering my nose, forehead, and chin. And if it hadn’t been for that rock getting in the way of the wheel on the scooter I was riding, I would have landed that jump just fine.

Stupid rock.

(Stupid kid.)

But it’s okay. I got better. My skin healed. I learned.

Besides… chicks dig scars.

Now I watch for rocks before doing sweet jumps. Or I just don’t do sweet jumps anymore.

But that’s the point of growing up: making choices and learning from those consequences.

And in some ways, I’m still learning. Only today, those rocks are different. Today I’m not landing many sweet jumps, but I am landing sweet property investments, and most of the time I land them alright.

Every once in a while, of course, I hit a rock.

And it hurts. And I lose some of my face.

But it’s okay. I get better. My skin heals. I learn.

And chicks dig scars.

That’s what I want to share with you today – some of the things I’ve learned; I want to point out the rocks so you can save some of your facial skin and stay pretty.

But not too pretty.

So the following are 5 and 1/2 tips for making your first (or next) property investment. Pay attention (or don’t. It’s all good.)

Traveling down the freeway, something just seems wrong about going the speed limit. I have to push the limits just a little. This is what intrigues me about the Autobahn in Germany. This federal highway has no federally mandated blanket speed limit, which makes it a dream for people like me.

However, just because the highway has no speed limits, that doesn’t mean a driver can afford to be stupid.

In fact, Autobahn drivers are mandated to control their speed during adverse weather conditions and in urban areas of the road. Additionally, an “advisory speed limit” of 81 mph applies to the entire freeway system to protect drivers.

What does this have to do with creative real estate investing?

Creativity in real estate is a kind of open road that often appears to be “rule free.” However, the same conditions that make it so exhilarating can also lead to the greatest crashes. Therefore, investing in creative real estate has its own “advisory speed limits” in the form of four important guidelines.

These are four of the primary rules and advisory limits of creative real estate investing. These have been passed down from one established investor to another with the goal of keeping aspiring investors from crashing and burning.

Let’s get to the 4 rules!

1.) When Investing with No (or Low) Money Down, You Need to Find Even Better Deals Than Those Who Invest Normally

Furthermore, the key was attached to a brightly colored postcard that claimed “You’ve Won!”

Did it have my attention?

Of course!

I had to continue reading, despite the fact that I knew this was just another piece of junk mail. Looking over the card I saw that a local car dealership was giving away a free car to someone who would come down and test drive a car this weekend. (Reading the small print I see that the odds of winning the car was 1/3,000,000 but the odds of winning a free cup of coffee was 2,999,999/3,000,000. I wonder which prize I won…)

So why did the dealership send me this colorful postcard and key?

Simple: this is direct mail marketing, and it’s used by millions of marketers all across the world to sell products. From cars, to insurance, to mortgages, to electric fireplaces and more, direct mail marketing is a proven technique for growing your business.

Today we are going to dive deep into the topic of direct mail marketing and focus specifically on how youcan use direct mail to get new leads, expand your brand, and grow your business. Welcome to the Ultimate Guide to Direct Mail Marketing!

Direct Mail… What is it and How Does it Work?

Direct mail is the practice of sending mail to a targeted list of people with the assumption that a very small percentage will respond to the campaign. Chances are you receive a lot of direct mail every single day in your mail box at home and just consider it “junk mail” and toss it in the trash (like the postcard with the key I mentioned above.)

I mean, sure it’s tangible. Yes, it’s cool. Yes, it has worked for some, and it’s done wonders for me.

In fact, this entire website is dedicated to real estate investing and perfecting the art/science/luck of it. Hundreds of books have been written on the topic (including these, my top 21 favorite real estate books.) Each week on the BiggerPockets Podcast tens of thousands of listeners tune in to hear the best tips, tricks, and strategies for building wealth through real estate.

However, it’s rarely discussed – is real estate, itself, a good investment? And if so… why?

Is Real Estate a Good Investment? Nope!

Historically, real estate actually has NOT been a great investment in itself. I know, a lot of you just choked on your lunch hearing that come from me, but bear with me a moment.

As famed economist and Nobel prize winner Robert Shiller has pointed out using the S&P/Case-Shiller Index, home values have actually appreciated, on average, at nearly the same rate as inflation over the past 100 years.

In other words – if you paid $100,000 cash for a home in 1970 and sold it in 2000 for $250,000 it may seem like you made a terrific investment. However, that change is only maintaining a 3% annual appreciation, pretty similar to inflation. They home hasn’t actually built them any wealth.

In addition, the home needed new windows, carpet, paint, and other changes throughout those 30 years, so it’s very possible that the owner of that home actually LOST money on their home purchase.

So, yes – buying a home with your $100,000 is probably better than tossing it into a bank account earning no interest but in itself, it’s really not a great investment. You’d probably be better off sticking that $100,000 in the stock market and earning an average of 8%.

Let me ask you a question: how long does it take you to pick out your clothes in the morning?

I bet it takes longer than most people will spend doing the math on their next real estate investments. I just don’t get it. People think the best deals are done on “intuition” and just buy something because itfeels right.

Ugh. Please people!

I’ve said it before numerous times: If you don’t have the right math going into a deal, you’ll never get the right profit coming out of it. (Tweet This!) That deal you thought was incredible will turn out to be a thorn in your side for years to come and you’ll join the ranks of the millions who have “tried” real estate only to fail.

This is why I harp so often on getting a firm understanding of the math when buying an investment property.

I don’t care if you are buying your first or 100th property – you need to understand and do the math.

That is my ultimate goal with this post: to help you learn to analyze a real estate deal so you can make the best investment possible.

Below I’m going to walk you through the math I use to analyze a rental property, step by step. Please, if there is one post this year you read carefully and don’t skim: let it be this post!

(Oh yeah – hey you! To accompany this blog post, I created a free PDF poster you can download right now and print out. It’s called “The 10 Biggest Mistakes Investors Make When Analyzing Rental Properties” and will help you avoid the mistakes that so many investors make when analyzing deals. Don’t buy a bad deal! Avoid these 10 mistakes and get a great investment property! To get the PDF, just click the link below:)

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